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CHAPTER 13

CHAPTER 13. FREE MOVEMENT OF CAPITAL AND MONETARY UNION. Important Developments. creation of a European Central Bank (ECB) (replaced the European Monetary Institute ( EMI ), January 1,1999) Responsibility : - managing the Euro - maintaining economic stabiity (together with the ESCB)

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CHAPTER 13

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  1. CHAPTER 13 FREE MOVEMENT OF CAPITAL AND MONETARY UNION

  2. Important Developments • creation of a European Central Bank (ECB) (replaced the European Monetary Institute (EMI), January 1,1999) • Responsibility: - managing the Euro - maintaining economic stabiity (together with the ESCB) • European System of Central Banks (ESCB) - assists the ECB - comprises the ECB and the central banks of member states - under Art. 105(2): ~ defines and implements the monetary policy of the Union; ~ conducts foreign exchange operations; ~ holds and manages the official foreign reserves of the member states; ~ promotes the smooth operation of payment systems.

  3. Free Movement of Capital • Suppression of exchange controls preventing the transfer of money between member states (originally, Art.67-73 of the EEC Treaty provided “free movement of capital necessary for the functioning of the common market”; andthe ECJ held that “the free movement of capital constitutes, alongside that of persons and services, one of the fundamental freedoms of the Union”)

  4. However, ECJ alsostatedthat: sincethemovementof capital is closelyconnectedwiththeeconomicandmonetarypoliciesofindividualmemberstates, • Freemovementof capital wasachievedin 1988 bytheadoptionoftheSingleEuropeanActandthe • But there are still some (limited) restrictions on thefreemovementof capital : - member stales may introduce new taxation laws restricting the free movement of capital: • for non-residents seeking to invest their capital in that state, or • for residents who seek to invest their capital in another member state they are to be treateddifferently than the other fundamental freedoms Directive88/361.

  5. ! There is a potentially great risk that such regulations could have highly restrictive effects on the freedom to provide financial services on a cross-border basis. • To avoid these risks, Article 58, following the principles of proportionality and non-discriminatory treatment, prevents member states from adopting tax laws which … “constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments”.

  6. Monetary Union • One of the ambitions of the EU since the early 1960’s. • Purpose: - providing currency stability - allowing greater integration of financial services • Goal : - greater monetary co-operation • Problems: - lack of economic convergence - weak political commitment by some members - disagreement over economic priorities • Result: - some member st. have retained monetarysovereignty and remain outside the monetary union

  7. Monetary Committee • assists the ECB • the ECB must report annually: • to the Council of the EU • to the Parliament of the EU • But! The ECB retains the final word in the management of the Euro!

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